Mid-Bedfordshire Schools (PFI) (Hansard, 10 January 2001)

§ Mr. Jonathan Sayeed (Mid-Bedfordshire)

The Minister will recall that I wrote to her Department on 7 December to seek her assistance with the provision of upper school places in part of my constituency. My request is endorsed by my hon. Friend the Member for South-West Bedfordshire (Sir D. Madel), who is present today, and by my right hon. and learned Friend the Member for North-East Bedfordshire (Sir N. Lyell).

The area in question is largely rural and has a population of about 65,000. It lies between Bedford in the north, and Dunstable, Luton, Hitchin and Letchworth in the south. The largest towns in the area are Flitwick and Ampthill, with a population of 20,000 between them. Other towns whose children attend the relevant schools, not all of which are in my constituency, include Arlesey, Barton, Henlow, Shefford and Stotfold. Much of the countryside is agricultural land with some attractive natural features, particularly Greensand ridge, which runs through the northern part.

The area is served by three upper schools: Harlington upper school, Redborne upper school in Ampthill, and the Samuel Whitbread community college in Clifton, which is close to Shefford. All three are excellent schools, providing a high standard of education, and are popular with parents. May I take this opportunity—I trust that the Minister will endorse this—to congratulate the heads, teachers and other staff of those three schools, as well as the pupils and their parents who make such an important contribution.

All three schools are over-subscribed—Harlington school houses 1,200 pupils in buildings designed for 847—and are likely to become even more overcrowded as the demand for school places increases on account of housing development. This year saw 1,030 applications to the three schools, but only 970 were admitted, so 60 were refused a place. More are likely to be turned away next year and even more in future years, which undermines the Government's commitment to allowing parents to send their children to a school of their choice.

The problem existed three years ago, but it was not so bad then. The three schools had 3,300 students then; they have nearly 3,800 students now, and by 2013, 4,800 places will be required. The increase stems from several factors, but mainly from the construction—fuelled by the Government's projections for housing in rural areas and also, I suspect, by the popularity of the three schools—of between 2,000 and 3,000 homes in the area.

The trouble is that the existing school buildings provide fewer than 3,000 permanent places. Bedfordshire local education authority intends to increase the numbers to 3,600 over the next two years through building projects at Harlington upper school and the Samuel Whitbread community college, which will make an immediate difference. There have, therefore, been benefits to the children of the Harlington and Shefford areas, but there will still be a need for another 1,200 places. The LEA has put in a bid under the private finance initiative and has been allocated PFI credits by the Department of £15.8 million. As required for any PFI proposal, a thorough analysis has been carried out of the various possible ways of delivering the 272WH additional 1,200 places, including a different approach to enlarging the existing schools and building a fourth upper school of 1,200 places.

The options analysis, which was rigorously carried out, considered the educational issues involved, the needs of the local community and value for money, and identified a preferred approach to the delivery of those additional places. It would involve the expansion of the three existing schools so that they can, for example, maintain the excellent links that they have with their 33 lower and eight middle feeder schools. Those links undoubtedly benefit the children in my area and have led to a significant improvement in pupil achievement during the past three years.

The LEA's proposals are in line with the wishes of local parents who want to maintain links with the successful schools; theirs is an almost simple—not simplistic—view. They say that when one has a winning team, one does not change it. As well as providing much-needed new buildings, the preferred solution would bring equally vital improvements to the standard of existing accommodation in each school. There would be a basic requirement for private sector participation in such an arrangement because, not unreasonably, the buildings would need to be at a uniform standard before there is investment in extensions.

While there are issues to be addressed in all three schools, I shall highlight the condition of the south school at Redborne upper school because it is deteriorating rapidly and is costing more and more to maintain. Under the preferred option, that inadequate building, which is no longer suitable for the purpose, will be replaced with a new building that will provide a better educational environment and have much lower running, energy and maintenance costs. The trouble is that that approach would require more funding than originally envisaged, with a total cost of around £32 million. However, rather than meeting the needs of just 1,200 pupils it would benefit 4,800 pupils at any one time—that is, 30,000 over the 25-year period of the private finance initiative. That represents only about £1,000 per pupil, or, in simple money, £200 for each year that a pupil is at the school. There would also be considerable saving in maintenance and energy costs that would allow more money to be put back into the curriculum and further drive up standards, which is what we are all about. The proposal would therefore provide much better value for money than building a fourth school which, while it may be cheaper ab initio, will cost around 50 per cent. more for every student over that 25-year period. In other words, a new school would cost £300 per pupil per year rather than the £200 that I cited earlier.

To adapt a term that is often used in defence procurement, the through-life costs of my proposals are 50 per cent. cheaper. However, I am a realist and I recognise that the Department has difficulty in accommodating a much larger project within the PFI programme. The LEA made a proposal in order to be helpful. It suggested a way of delivering the same outcome but with two of the three schools involved in the PFI and the third school, Redborne upper school, funded from other capital resources. In that proposal, a PFI provider would upgrade and extend the accommodation of Harlington upper school and Samuel Whitbread community college, while the work 273WH at Redborne upper school, including the replacement of the south school, which is essential and urgent, would be contracted out in the traditional way. However, as yet it has not been possible to put forward a package that would be sufficient to finance the work at Redborne outside the PFI, despite the best efforts of the LEA, in conjunction with Department for Education and Employment officials, who have tried to be helpful.

The LEA is putting a bid to the DFEE for targeted capital to bridge the funding gap, but it will be later this year before a decision on that bid can be taken. The problem with such a late decision is that there will be many other bids during the period, which means that the budget may not stretch far enough. The school governing bodies and the wider community are worried that any delay will result in greater pressure being put on existing school buildings, which are already overstretched, and in money that could be better used being wasted on temporary accommodation.

A further delay would have a serious impact on staff and pupil morale and consequently on children's education, which is indefensible. It would not be helpful to the Government, because it would not assist them to meet their targets for improvement in school standards.

However the project is funded, it is vital that places are provided as soon as possible so that my constituents can be assured that their schools will continue to provide the high standard of education to which they have rightly become accustomed and for which they pay. I ask the Minister to say when a decision is likely to be taken on the funding and what she is minded to decide.

§ The Parliamentary Under-Secretary of State for Education and Employment (Jacqui Smith)

I congratulate the hon. Member for Mid-Bedfordshire (Mr. Sayeed) on securing the debate on an issue of great importance to his constituents. I also congratulate the schools in his constituency on the good job that they do in achieving high standards.

As the hon. Gentleman said, capital investment in schools is an important priority for the Government. Increased capital funding and the improvement of school buildings is part of our commitment to raising educational standards. That is why Government capital expenditure on schools has tripled since we took office and why we will embark on a £7.8 billion investment programme to further improve school premises and facilities in the next three years. The hon. Gentleman will welcome the extra money that has already been made available to tackle the backlog of work in Bedfordshire schools, which reflects the national funding increases from £3.162 million, £33 per pupil, in 1996–97, to £16.846 million, £249 per pupil, in 2000–01.

I understand the hon. Gentleman's point about the private finance initiative's ability to deliver the project, and I should emphasise that the development of public-private partnerships is the key to our strategy to maximise the impact of resources available for education and to secure a modern educational infrastructure. We believe that PFI is a means of delivering better and more cost-effective public services by bringing the private sector more directly into the provision of the assets that the public sector needs. PPP can harness private sector expertise and innovation and allocate risks to the partner best placed to manage them.

274WH Long-term private sector involvement means that there is a continuing commercial incentive for efficiency through the various stages of work from the initial design, through to the operation of buildings and the management of services. That is why we have already allocated over £1.2 billion of PFI credits to support PPPs in the schools sector. A further £1.65 billion of credits are available in 2000–02 to 2003–04, and we will shortly be allocating up to £400 million to support new projects for which contracts are expected to be signed in 2002–03.

In 1997, there were no signed PPP or PFI contracts in the schools sector; now there are 28 contracts to build or manage new school facilities, covering around 400 schools, with a capital value of over £500 million. The PFI projects of a further 33 schools have been endorsed by the interdepartmental project review group, and they have been allocated PFI credits. Those projects are in procurement, and are being supported by the Department as they work towards contract signature.

I turn now to the problems faced by the Bedfordshire schools PFI. It is worth looking at some of the history. Bedfordshire's outline proposal was ranked 11th of the 66 proposals received by the Department in the 1999 PFI credit allocation round. That was for projects for which it was aimed to sign contracts in 2001–02. The 66 proposals received in 1999 required a total of £1.3 billion of PFI credits. That was a significant overbid against generous available funding, and we were able to support only the 17 highest scoring proposals by provisionally allocating £284 million of PFI credits, which, as the hon. Gentleman said, also included £15.8 million of PFI credits allocated to the project in his constituency.

The projects were evaluated against our published criteria: priority need, sufficiency, condition and suitability, including an assessment of the extent to which proposals made a case for raising standards; the extent to which proposals address wider DFEE priorities and the extent to which proposals address wider Government priorities. The Bedfordshire project was supported primarily on the basis of the need for new school places forecast as a result of housing development—the need that the hon. Gentleman outlined as the most significant. The primary reason for supporting the Bedfordshire proposal with the allocation of £15.8 million of PFI credits was the basic need case. In order to fund the condition and suitability elements of the re-scoped project, we will have to consider how the project compares with high condition and suitability needs elsewhere.

We continue to recognise the case for providing new school places in mid-Bedfordshire in a planned and coherent way to match the need generated by housing development, but this must be done in a way that is cost effective and does not call into question the basis of the original prioritisation on which the £15.8 million of PFI credits were granted. The allocation of PFI credits can be confirmed only once the interdepartmental project review group has approved the project. PRG approval is subject to the authority having developed an outline business case that clearly demonstrates that a commercially viable, value-for-money PFI contract can be delivered.

275WH As the hon. Gentleman suggested, a complicating factor in this case has been the various alternatives proposed by the authority. The original £15.8 million of credits were allocated on the basis of a basic need case, and for the provision of a new upper school. We understand that, after the outline proposal for a fourth upper school had been provisionally approved, the LEA consulted the three existing mid-county upper schools and concluded that that option would be difficult to deliver.

We appreciate that if Bedfordshire were to develop four upper schools, starting from scratch, they would not place the three existing schools on their current sites. In developing its admissions policy, the authority paid close attention to the needs of the existing schools, their relationships with feeder schools and the loyalty of parents who wish their younger children to attend the same schools as their older siblings. To develop an affordable PFI solution, the LEA may need to consider whether to change that admissions policy.

The LEA's desire that the three existing upper schools should benefit from the PFI project—understandably shared by their head teachers and governing bodies—must be weighed against the Department's need to target investment where it is most required, while ensuring value for money.

We are concerned that the cost of the three-school project has increased. It was originally estimated—at the same time as the alternative proposal for a new upper school proposal was put forward—as requiring £12.8 million of PFI credits. It first increased to £24.1 million, and now requires an estimated £32.6 million of PFI credits. Similarly, the cost of a two-school PFI project, with the cost of work planned for Redborne school to be funded from other sources, has increased from £20 million to £21 million. By seeking, however understandably, to widen the scope of the project in order to deal with condition and suitability issues at the three existing upper schools, the LEA risks undermining the value-for-money case for the project. The current estimated cost of extending, improving and remodelling the three existing schools is more than twice the cost of developing a new school to provide the same number of additional school places, which, as the hon. Gentleman said, was the first and pre-eminent reason for extra investment in the area.

A change in focus—from a starting point of basic need—to include condition and suitability issues will mean us having to consider Bedfordshire LEA's request for additional PFI credit funding against high-priority condition and suitability needs elsewhere. The hon. Gentleman argues eloquently that the cost per pupil will decrease as the project size increases. I have no doubt that economies of scale would apply in this case, as they would in many others. However, I have to consider not only the efficiency of alternative Bedfordshire schemes, but the availability of credits and the opportunity cost of devoting significantly more resources to Bedfordshire as against other schemes pursuing the same resources.

We have never increased PFI credit funding to this extent for a project where there has been such a change of scope; we have increased PFI funding for projects, but we have applied specific criteria to all such requests 276WH for increased funding One criterion is that the increased credits should relate to increased costs arising as a direct result of the implementation of the new schools framework, from limited project enhancements that provide value for money and address key DFEE priorities, such as improved special educational needs provision or school-community links, from changes in interest rates or other technical factors affecting financing, from the underestimation of life cycle costs or from construction cost inflation. Furthermore, in order to fix project costs at an early stage of development and give LEAs more certainty about the funds likely to be available to them, we have been working with PricewaterhouseCoopers to develop a PFI credit tool kit, which is being used to evaluate the PFI credit requirement of projects in the current PFI application round. It is likely that in future we will rule out increases resulting from significant changes to project scope by LEAs. That, of course, will enable more projects that meet planned departmental priorities to be supported.

Given my argument about competing priorities, it is important to set the context for a decision about extra credits to Bedfordshire. We are currently considering 51 proposals for new PFI projects, aiming to sign contracts in 2002–03 with a capital value of more than £1.5 billion. We are also considering requests for increased funding from other projects that are currently under development. Given the current high level of demand for PFI credit funding, it may be difficult to find the increased PFI credit funding requested by Bedfordshire. In order to fund the increase requested, it is likely that we would have to drop completely one or more of the proposals that we are considering in the current PFI credit allocation round.

The hon. Gentleman outlined the two-school option, and I can tell him that officials have previously encouraged the authority to develop the two-school PFI option covering Harlington upper school and Samuel Whitbread community college, combined with a conventionally funded project to extend and improve premises at Redborne upper school, which appeared to offer the most viable alternative to building a new fourth upper school. I appreciate that it will be difficult to progress the option until we announce the outcome of basic need and targeted capital applications.

Although I am pleased to say that Redborne upper school has been allocated funding to meet 116 new places and 100 post-16 places, which were announced on 19 December a 2000, the deadline for targeted capital funding applications is 15 January, which will not allow us to announce the outcome of Bedfordshire's application until the spring. Also, although I understand that the LEA was not able to secure funding for all the work at Redborne upper school—as, in the recent application round, authorities were asked to apply for funding based on the estimated deficit of school places up to September 2004, which they intend to meet by new building in 2001–02—the current allocation does not preclude further applications in future years. I urge the authority to consider the possibility of developing a project for the phased delivery of new places at Redborne on that basis, and to consider allocation from its condition-related formula capital, which will be announced shortly.

I welcome the hon. Gentleman's comments about officials in the Department. I suggest that the LEA should continue its discussions on funding for Redborne 277WH upper school with my officials, while also continuing to discuss options for a PFI project. Although I hope that the hon. Gentleman will understand the competing priorities that must be considered, I assure him that we remain committed, as he does, to providing extra places for his constituents and ensuring that we do that in a cost-effective way, which will enable schools in his constituency to continue their excellent work in raising standards.